Sugar topped 20 cents a pound for the first time in five months, potentially opening the door to a "new ball game" which could return prices to 29-year highs, after a buying spree attributed to panic hedging of option positions.

New York's October raw sugar lot gained 3.0% to 20.07 cents a pound at one point, its highest since March before losing some ground to stand at 19.88 cents a pound in late deals.

The rise surprised many traders given a dearth of bullish news on the sweetener's supply and demand fundamentals.

"It's mainly technical," Jake Wetherall at Rabobank said, adding that a close above 20 cents a pound would be "interesting", and potentially viewed as a buy signal by funds.

'New ball game'

At Sucden Financial Sugar, Nick Penny said that buying appeared to have been sparked by hedging by a large number of investors potentially caught out by positions in October futures set at the 20-cents-a-pound mark.

"With the threat of further fund involvement should we maintain these levels, the danger of a runaway rally has obviously concentrated the minds," Mr Penney said.

A close for New York's October contract above 20 cents a pound, would represent a technical "breakout" and "possibly a new ball game".

"This means we may be looking at a new [price] range of 20-30 cents a pound, rather than 13-20 cents," he told Agrimoney.com.

"Twenty cents is going to be psychologically important for producers and funds coming in."

Sugar in February topped 30 cents a pound, its highest for nearly 30 years.

'Significant downside'

Friday's price rise defied a series of warnings from analysts that the sweetener's revival will be undermined by the return of India, the world's top sugar consumer, to the export market, after two years of net imports.

India's cane crush is expected to come in at about 25m tonnes, some 2m tonnes ahead of demand, with some analysts forecasting a 28m-tonne figure.

At Commonwealth Bank of Australia, Luke Mathews forecast that prices "will come under downward pressure as the market's supply squeeze dissipates in the fourth quarter".

Hightower Report analyst Terry Roggensack said sugar appeared "vulnerable to a significant downside correction" should broader commodity market weakness force a retreat by funds.

"Keep in mind, the large and small speculators combined held a net long position of 148,950 contracts in the last [regulatory] report, which is a historically high level," Mr Roggensack said.

"The market is in a very overbought condition when looking at the speculators' net long position and if India production is higher than expected, fund and speculative longs might begin to search for other markets to buy and hold."